1. Field of the Invention
The present invention relates generally to online auctions. More particularly, the present invention relates to online auctions via user accounts, having one or more different types of payment units (e.g., incentive points, money and associated point or cash credit), from which payment transactions are conducted.
2. Description of Related Art
Auctions, especially online Internet-based auctions, provide a very popular marketplace for buying and selling new or used merchandise for both the consumer and the merchant. Traditionally, auctions have been used extensively to sell highly valued property such as fine art (e.g., paintings, sculpture, porcelain), jewelry, collectibles (e.g., clothing worn or owned by celebrities, manuscripts by famous writers or composers, musical instruments played or owned by famous musicians), and antiques. Because of the nature of the goods sold at these auctions, only wealthy members of society participated, and individuals at lower income brackets found other channels for buying and selling their property such as newspaper classified ads, flea markets, consignment discount stores, and garage sales. Even companies, with all of their financial resources, rarely participated in auctions.
However, as more and more people have discovered the value of auctions as an effective means of matching buyers and sellers for even ordinary items and services, the financial obstacle to auction participation has almost disappeared. Estate auctions, police-sponsored auctions of impounded items (e.g., vehicles impounded in drug busts), and charity auctions (e.g., dates with the most eligible bachelor) are some examples of auctions that draw ordinary individuals.
With the advent of the Internet and in particular the World Wide Web (“Web”), companies and individuals alike are transforming the way sales transactions are conducted as more and more people are less hesitant to buy and sell online. Secure transactions have paved the way for opening up the market to those individuals who have been leery of submitting credit card information across the Internet. At first, only companies sold products to people or other companies. Soon thereafter, ordinary people began to sell their personal items and even services to other people.
To match up these sellers and buyers, online auction service companies (e.g., EBay) have appeared on the Internet scene and provided a viable option for many individuals. Even those Internet companies who have traditionally sold new products over the Internet (e.g., Amazon.com) have provided auction functionality in their respective servers to cash in on the auction wave. Thus, what was once the province of the wealthy few is now enjoyed by the masses over the Internet.
These auction companies operate by having sellers post their goods (typically for some specified time period) for sale to the highest bidders. The bidders use money (e.g., $450) as the bidding and ultimate payment unit. The winning bidder sends the seller the amount of money corresponding to the highest bid (while the auction companies charge a transaction fee that is typically paid by the seller), and the seller delivers the item to the winning bidder. Escrow accounts are sometimes provided (typically at the buyer's expense) to ensure that the buyer receives the merchandise after sending the money to the seller.
But, winning bidders sometimes do not or cannot pay for the items they won. For example, they may simply change their mind after taking some time to reflect. Or they may realize that they got caught up in the frenzy of the auction and are not willing or able to pay for the item. Moreover, some buyers may be afraid of the auction frenzy, and be unwilling to participate for this very reason. Still others may feel that they have insufficient funds to participate, particularly in light of the absence of an integrated credit mechanism.
Moreover, despite the advantage of money as a universally accepted means of payment, some buyers may not be willing to buy certain goods with money, whether via auction or otherwise. Just as gamblers part with their money more freely when converted into “chips,” consumers may be more willing to part with an alternative form of currency. “Points” are an example of a popular alternative currency (though not in an auction context) used by many incentive award programs, as described below.
What are incentive award programs and how did they come about? Merchants have long realized that due to marketing costs, the first sale made to a customer is far more expensive (and thus less profitable) than ensuing sales. In order to maximize profits, most merchants work to build long-time relationships with customers, yielding ongoing sales with higher and higher profits. While many merchnats would be willing to offer lower prices to entice particular customers to stick with them and not switch to competitors, this is often impractical and always expensive. Charging different customers different prices is difficult at many levels and even if it could be accomplished, giving the incremental profit back to the consumer defeats the merchant's goal in the first place. For this reason, incentive award programs were developed.
What is an incentive award program? Incentive award programs come in two varieties—loyalty incentives and permission marketing. Loyalty incentive programs award “purchase points” to those consumers who take certain purchasing actions. A classic loyalty incentive program provides a benefit to consumers who stick with or are loyal to a merchant and not switch to competitors, while “punishing” those who switch from brand to brand. Typically, an incentive is an incremental benefit that is worthless until enough points have been earned to redeem for a discount or a gift. Permission marketing programs reward consumers with “attention points” for paying attention to a marketing message.
The loyalty incentive program will be discussed first. A highly successful form of loyalty incentive award program with which many people are familiar is the airline mileage program, although non-mileage-based programs also are widespread. Mileage programs currently are conducted by almost every commercial airline. Travelers can earn mileage or mileage points by purchasing an airline ticket and actually taking the trip. The exact number of miles earned by the traveler is usually calculated by some formula based on the distance of the trip. After accumulating a certain number of miles or mileage points, the traveler can redeem his miles for a free or discounted airline ticket or some other award (e.g., coffee maker, free upgrades) that he can select from a catalog. The price-shopping, airline-switching fickle traveler would arguably not benefit (or not benefit sooner) than the traveler who is loyal to one airline.
Similar incentive award programs also have begun to flourish in an online environment over the Internet. Buyers can earn points online, for example, by purchasing goods from an online merchant, clicking on advertisements, filling out registrations and surveys, and performing various other activities of interest to merchants, advertisers and other companies. Users accumulate “points” into an “account” from which they can redeem their points for certain goods or services.
Even those consumers who are not regular online users or even familiar with the Internet may well be familiar with a variation of the point system. Many merchants award discounted or free merchandise to loyal and frequent customers. For example, by ordering a regular meal at a restaurant on ten different occasions (recorded on a stamped card), the customer may get 50% off the eleventh meal (or even get the eleventh meal free). Similarly, another merchant might give a loyal customer a free drink with his meal after every seventh or tenth visit. Another merchant might give $10 off the next purchase for a first-time customer. These variations on the loyalty incentive point system are just that—variations. Even though an actual physical card may be stamped after each visit to a restaurant or a gift certificate is handed out, these stamps and gift certificates are analogous to points, albeit in non-electronic form.
The tremendous power of loyalty incentives is this: the more points that a consumer has earned, the more the consumer wants points! Each incremental point is more and more valuable to the consumer because high point levels are associated with more exclusive (and valuable) benefits. So, the merchant benefits from the increased returns. The best customers are the least likely to switch to a competitor.
Yet, despite the attraction to consumers of points that often are perceived as a “free bonus” for taking actions they otherwise would have taken anyway (such as traveling on an airline or purchasing an item), existing point systems have certain redemption restrictions that have limited the desirability of points to consumers generally, and prevented them from continuing to participate in point systems on a frequent basis. After some degree of initial participation, consumers often are disillusioned after recognizing that they cannot obtain a sufficient number of points to reach their desired goal.
One factor contributing to this problem is that points are not universally redeemable for all goods. Points typically have restrictions on redemption, including limitations to the goods of one or a few affiliated merchants. Miles earned for trips taken on one airline, for example, cannot be applied to the traveler's account with another airline. Thus, in order for the traveler to earn as many redeemable miles as possible within a given timeframe, the traveler must buy and use airline tickets from one airline. By being loyal to one merchant, the consumer is rewarded with points which he can redeem later if he accumulates enough points.
However, the consumer may be missing out on some bargains from other merchants because of his desire to remain loyal to the first merchant. For example, the consumer may continue to purchase relatively high-priced airline tickets from Jones Airlines so that he can accumulate miles from them instead of purchasing the relatively inexpensive airline tickets from Smith Airlines. Similarly, the consumer is likely to visit the expensive Joe's Tacos to get his card stamped after each visit so that he can get a free meal instead of visiting the less expensive Tim's Tacos. Thus, the merchant-specific nature of the incentive points system psychologically limits the consumer's desire to purchase goods that the consumer would otherwise purchase because of the perceived penalty (i.e., opportunity cost) of visiting another merchant.
From the merchant's point of view, loyalty incentives are costly. Every point that is redeemed by a customer costs the merchant money. While some attrition occurs (i.e., many points are never redeemed), the fact remains that every point awarded has a marginal cost to the merchant. For example, some airline companies sell “miles” to hotels and other points issuers for approximately 2 cents each. Thus, a very real cost to these merchants exists for every point issued to a customer. Because points cost money to issue, merchants always require some payment by the consumer to actually earn the points. For example, the consumer must purchase a plane ticket or stay in a hotel to get frequent flyer miles.
Despite these drawbacks in the loyalty incentive programs, consumers are seeing some improvements. Although most point systems are still merchant-specific, more and more merchants are forming relationships with one another so that points are more universally accepted across different merchants, and thus more desirable to consumers. For example, purchasing goods from one merchant can result in earning points with another merchant. A consumer's use of his credit card might earn the consumer miles with Jones Airlines. Similarly, points earned through one merchant may be redeemable with another designated merchant. Thus, the consumer is no longer restricted to one merchant's catalog at redemption time.
However, there still exists no “universal” marketplace for the redemption of points, e.g., something akin to the online auction marketplace in which new sellers (not previously affiliated with the auction company) can easily post their items for sale. At best, there may exist a redemption catalog containing the goods of multiple merchants.
Another redemption-related limitation of existing point systems is that points can only be redeemed after certain point thresholds have been reached. For example, Jones Airlines might award a free domestic round trip ticket only after the customer has earned 3,000 miles. A customer with 2,999 miles knows that these 2,999 miles is worthless until that last 1 mile has been earned to qualify for that 3,000 mile threshold. Similarly, only after the tenth visit to Joe's Tacos will the customer be eligible for a free meal. In each of these cases, if the customer has earned even one point, one mile, or one visit less than the required redemption threshold, the customer will not be able to redeem his points, miles, or visits for the desired goods or services.
Finally, points typically expire after a certain specified time period. The merchant benefits in that customers are motivated to redeem points as the expiration date approaches to avoid losing the points forever. Similarly, if the point total is below the redemption threshold, the customer may be motivated to take some action (e.g., purchasing a product, clicking on an ad, registering with a website) to earn enough points so that he may redeem them and not subject his already-earned points to expiration.
Yet, the “fixed-price” nature of redemption continues to limit the desirability of points to consumers, as well as the effectiveness of expiration. Over time, consumers may lose interest (and even let their points expire) as they recognize that the items they desire in the redemption catalog (which require a specified point total) may take a long time to obtain given the current rate at which points are being accumulated.
Were there an alternative form of redemption that provided consumers with a greater perceived opportunity to obtain desirable items, consumers might be more motivated to participate in incentive award programs with greater frequency. If consumers thought they could obtain their desired items, almost regardless of the number of points they had accumulated, they might be less disillusioned by the prospect of expiration of their points.
Thus, incentive award systems have demonstrated the viability of altering consumers' behavior if consumers perceive the points to be of value. Yet, the fixed-price nature of point redemption in existing incentive award systems often has limited the perceived value of points. Auctions, on the other hand, have proven to be an effective alternative mechanism to the buying and selling of certain goods at a fixed price. Yet, the lack of user accounts and an integrated credit mechanism, coupled with the limitations of a purely cash-driven payment mechanism, have prevented auctions from being even more popular than they are today.
Another form of incentive program is permission marketing. Permission marketing rewards consumers somehow for paying attention to a marketing message. For example, a luxury resort may give out free airline/hotel accommodations to Lake Tahoe or Las Vegas to invited families or couples if they merely visit their facilities, fill out a questionnaire, and watch a 90-minute presentation of the resort. A marketer may also give a free T-shirt or cash for attending a seminar or reading a promotional brochure.
Permission marketing also has its drawbacks. This technique carries a marginal cost to the merchant. The more people who pay attention, the higher the total cost to the merchant who had to pay to gain the attention. By offering every prospect a significant benefit for a zero-cost activity (e.g., clicking on a banner) on the part of the consumer, the merchant threatens itself with bankruptcy. As a result of this high marginal cost of gaining consumers' attention, these merchants are using contests and sweepstakes to gain the attention of large numbers of consumers. By giving prospects entries in a sweepstakes in exchange for clicking on a banner or reading an ad, the merchant advertiser can gain the attention for zero marginal cost. After all, the cost to the merchant advertiser is almost nothing to print more sweepstakes entries.
The limiting problem of contests and sweepstakes is compression. In essence, consumers need more and more prizes (of greater and greater value) to remain interested. Unlike loyalty incentives, which become more valuable over time (i.e., customers want more points as they earn more points), sweepstake benefits become less valuable over time. The benefits get compressed. In other words, a prospect who has eleven sweepstakes entries is likely to work less diligently for the twelfth entry than she did for the first entry.
What is needed is a system, preferably an automated online system, that provides the benefits of both auctions and incentive award programs (i.e., loyalty incentives and permission marketing), but without the disadvantages of both as noted above. Furthermore, the system should also provide zero marginal cost to the merchant, much like the zero-marginal costs of sweepstakes used in permission marketing. The present invention provides such an enhanced account-based online auction system (not necessarily limited to cash-based forms of payment) which also can play the role of an auction-based redemption component of an incentive award program.